Could cellphones finally bring about the cashless society?

Futurists have long prophesied the death of cash. Despite this, banknotes and coins still predominate in retail transactions. However, cash’s demise may finally be on the horizon — thanks to cellphones.

A number of companies are developing solutions that turn cellphones into full-blown electronic wallets that can be used at points of sale to make retail purchases. Could cash finally be on its way out?

Nokia, the world’s largest manufacturer of mobile handsets, recently announced it will launch a service enabling people to make financial transactions with their cellphones next year. Known as Nokia Money, it will allow people to transfer money to one another electronically over the air. Consumers will also be able to use Nokia Money to make purchases at retailers.

But the Finnish cellphone giant isn’t the only company investing in what is expected to become a multibillion-dollar industry in the next few years. In fact, SA has become somewhat of a hotbed in development when it comes to mobile money.

There are a number of SA companies that are developing solutions in this area. JSE-listed Blue Label Telecoms has developed Ukash, Tradebridge has Pocit, and Standard Bank has Mimoney. There are others.

Most of the services are aimed at the unbanked, typically younger people who do not have access to a credit card to pay for services online. There are only about 7m credit cards in issue in SA. Yet there are about 20m debit cards, most of which can’t be used for online purchases.

The big banks, most notably Standard Bank, are also getting in on the game. Standard Bank has started a new division to focus on new opportunities in electronic banking. The bank’s Herman Singh (pictured above right), says the addressable market is huge.

Standard Bank has launched a product called Mimoney that is aimed primarily at the unbanked youth market. “Even without a bank account, you can use Mimoney to make and receive payments and go shopping,” Singh says. “Young people account for over 60% of online traffic, but account for only 10% of online spend.”

He says cellphone payment systems like Mimoney compete directly with card payments companies such as MasterCard and Visa, but are much cheaper to use. There are no fees associated with most Mimoney-based transactions, Singh says.

“Why do you even need an ATM anymore? It’s ridiculous to convert digital cash into analogue cash. This definitely disrupts traditional banking business.”

Standard Bank is experimenting with new business opportunities in electronic transactions, particularly in mobile. “The approach has been that if there is cannibalisation of the traditional bank, we will accept that and embrace the radical change that it brings,” Singh says.

Mimoney has signed agreements with a range of online retailers and is close to concluding a deal with a national bricks-and-mortar retailer, Singh says. Clients include Ster Kinekor, MXit, eXactmobile and Mr Delivery.

Mimoney business head John Campbell (pictured above left) says there is a “tremendous need” for young people to buy products online but they can’t do so because they don’t have credit cards. “The only barrier to transacting now is having access to a cellphone,” says Campbell.

Though the product is available only in SA for now, there are plans to launch Mimoney in other African markets in 2010.

How does it work? Campbell explains that if you go to Ster Kinekor, for example, you can select Mimoney as a payment option at the cinema’s kiosks. The system then asks for your cellphone number and Mimoney voucher number, which can either be pre-purchased at a Mimoney distributor, via electronic funds transfer, or automatically generated in the Mimoney cellphone application.

Singh says Mimoney makes a profit on transactions that cost little as R1, though the company will accept payments costing as little as 1c.

Consumers are able to convert regular money into Mimoney currency via Internet banking, at points of sale, self-service terminals, or at merchants’ premises. Mimoney can be used for payments online, at call centres and, soon, at physical stores.

Standard Bank hopes to have signed up 1m Mimoney users within the next 12 months. — Duncan McLeod, TechCentral

1 Comment

Very interesting, I wonder how nokia is going to get around to each country to offer this service? Mabe use someone like blue label telecom as there architecture for there product, as they are already servicing most of the nokia territory with some or other product, microsoft got into bed with BLT for that reason to open up the capability for one app, selling apps like iphone does in there app store.
I think BLT bought into Ukash, easier way to open up into new territory.
Very interesting indeed, can’t wait to see where this leads to in the future.